Cash To Close Guide

Sep 9th 2022
When you buy a home, you’ll be required to bring a certain amount of cash to the closing to pay various fees necessary to complete the sale. Therefore, it’s essential to understand what fees you’re required to pay and the total amount needed at the closing, also known as cash-to-close, so you’re sure to show up with the right amount.

hash-markWhat is Cash to Close

Cash-to-close means the amount of money you need to bring to the closing to finalize the sale. Even if you are financing the purchase, you’ll still be required to make a down payment and pay certain closing costs to your lender and other service providers to complete the transaction. But not all of these closing costs will be paid at the closing. So, cash to close refers to the precise amount you will bring to the closing to pay off any outstanding balances before you can take ownership of the property. 

hash-markCash to Close vs Closing Costs 

Closing Costs

Closing costs are any costs you pay to a mortgage lender or other parties to finalize your home loan. Typical closing costs include attorney fees, appraisal fees, title insurance, origination fees, private mortgage insurance, taxes, and more. But not all of these closing costs will be paid by the borrower at the closing, and they may either be included in the loan or prepaid at an earlier date.  

Cash to Close

Cash-to-close refers to the total amount of money the buyer will need to bring to the closing table. This includes any outstanding closing costs not being tacked onto the loan, as well as the remaining down payment. Cash to close can vary dramatically depending on the circumstances – for instance, if you already made the down payment, your cash to close will be significantly lower. Or, if you convinced the seller to foot some of your closing costs, you won’t need to bring as much to the table. So, while closing costs and cash to close are related concepts, the latter refers to the dollar amount that is actually paid at closing, not the total costs. 

hash-markHow to Estimate Cash to Close

You can get a quick estimate of your cash to close by using this formula:

Cash to Close = Down payment + closing costs – credits

Determine your down payment by taking the home’s sale price and multiplying it by the amount you plan to put down. Then add in the estimated closing costs, typically around 3-6%. Finally, subtract any credits you know are being waived by the seller or lender. Here is a quick example. Say the home is worth $200,000, and you plan on putting down 15%. You estimate the closing costs will be around 5% of the sale price, and the seller is giving you a $5,000 credit toward your closing costs.

Cash to close = $30,000 (200,000 x 0.15) + $10,000 ($200,000 x 0.05) - $5,000 = $35,000

Your cash to close in this example would be $35,000. However, this number could change dramatically depending on a variety of factors. So, consult your broker and attorney to determine exactly how much you should bring to the closing.

hash-markCash to Close Bottom Line 

Ultimately, buying a home can get expensive, so getting a handle on the various related costs and knowing what you’ll be expected to pay and when is essential. You don’t want to make it to the closing just to find out you don’t have enough money to finalize the sale. So, work closely with your team of professionals to determine how much cash is needed to finalize the transaction.